Apple Files $53 Million Settlement over Water Damage Policy

DON EMMERT/AFP/Getty Images(CUPERTINO, Calif.) -- Apple Inc. has filed a $53 million preliminary class settlement agreement in Santa Clara County Superior Court in California, potentially allowing $200 refunds to iPhone and iPod Touch customers who claim they should be covered under warranties, but were not because of liquid indicators in their devices.

A group of four class representatives were upset over Apple's liquid damage policy prior to Dec. 31, 2009, in which the company would deny coverage under the standard warranty and purchased AppleCare Protection Plan for an iPhone whose headphone jack or dock connector was pink or red, indicating water contact, and for an iPod Touch with the same description before June 30, 2010.

Apple iPhone and iPod Touch users who were covered under a warranty, brought in devices before those dates and were denied repairs or replacements because of a pink or red indicator will be able to go to a website for class members after judicial approval is given.

Jeffrey Fazio, an attorney representing two of the four class representatives, said he expected judicial approval in the next 30 days.

"They're both delighted, as are we," Fazio said of his clients. "We think it's a very good settlement. We think people will get real money and real relief."

Requests for comment to Apple and its attorneys were not returned.

The company has not acknowledged any wrongdoing in the settlement.

The movement to build a class started in April 2010 when Charlene Gallion filed a lawsuit against Apple in U.S. District Court. She and her attorneys proposed that they represent all purchasers of iPhones and iPod Touches in the country.

Apple's former liquid damage policy was changed around December 2009 for iPhone and June 2010 for the iPod Touch. The company then said that a warranty claim should not be denied based solely on a triggered headphone jack or dock liquid contact indicator.

Fazio said the issue with Apple's former policies was that company employees would allegedly base the decision to repair or replace a device based on the indicator without fully inspecting the device.

"If then they find after inspecting them internally, as we allege they should have done from the beginning, they find water damage, frankly, we don't find anything wrong with it," Fazio said.

Now, company employees first ask customers if a device has been damaged by water, then inspect the device, Fazio said.

So far, Fazio said, there are about 150,000 identifiable people who have made claims.

"They'll remember. I guarantee it," Fazio said of the potential claimants. "People who spend that much on a device and have to buy another one for reasons they don't believe were valid -- they tend to remember."

Depending on the final number of claims, people could receive about $200 from the $53 million settlement. If the fund is not fully utilized by claimants, the remaining funds will go to non-profit groups and consumer organizations, Fazio said.

Public records show that the agreement was filed on Tuesday, after an initial copy of Apple's agreement was leaked by Wired magazine last month.

According to the document, "liquid contact indicator" is the name Apple used from Dec. 22, 2009 to describe a water contact indicator tape it purchased from the 3M Company and installed in iPhone 3G and iPhone 3GS.

"They weren't designed to detect damage to an electronic device," Fazio said of the indicators. "What they were designed to do is alert a company that there may be a problem. And if they saw that, opened the device and inspected it and actually found a problem, we wouldn't have filed suit."